"B.C. Policy Perspectives" is the web log of Mark Crawford. THE PURPOSE OF THIS BLOG IS NOT PARTISAN OR IDEOLOGICAL. INSTEAD, I TRY TO IDENTIFY POSITIONS AND PERSPECTIVES THAT ARE NEGLECTED, DROWNED OUT OR UNDERREPRESENTED ELSEWHERE. Some politicians and journalists have found it helpful and interesting, and I hope that you do, too!
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Wednesday, October 24, 2012

Prime Minister Harper spoke to a friendly crowd at last summer's Calgary Stampede when he said that this period of majority government was not a time to relax, but to "put pedal to the metal" in driving the Conservative prosperity agenda. The rest of us are growing increasingly alarmed by his blind faith that any trade or investment deal is a good one. I have already written about the reckless pace of trade treaty-making, but this new investment treaty will endow Chinese investors with even greater power than American corporations enjoy under NAFTA, according to one Osgoode Hall legal expert. Like Harper's attitude to constitutional convention, judicial appointments, human rights the environment and democracy itself, it reflects a kind of callousness associated with right wing business elites who are unfamiliar with the rule of law and all of its niceties. It is not a mentality that befits a prime minister of a parliamentary democracy.

Here is a copy of Prof. Gus Van Harten's open letter to the Prime Minister:

Oct. 12, 2012

Dear Prime Minister Harper and Minister Fast,

I am an expert in investment treaties. As a Canadian, I am deeply concerned about the implications for Canada of the Canada-China investment treaty. As I understand, the treaty is slated for ratification by your government on or about Oct. 31. I hope you will reconsider this course of action for these reasons.

1. The legal consequences of the treaty will be irreversible by any Canadian court, legislature or other decision-maker for 31 years after the treaty is given effect. The treaty has a 15-year minimum term, requires one year's notice prior to termination, and adds another 15-years of treaty coverage for assets that are Chinese-owned at the time of termination. By contrast, NAFTA for example can be terminated on six months notice.

2. Other investment treaties (aka FIPAs) signed by Canada have a similar duration and, in this respect, are exceptional among modern treaties. Yet none put Canada primarily in the capital-importing position. As such, the Canada-China treaty effectively concedes legislative and judicial elements of our sovereignty in a way that other FIPAs do not. Chinese asset-owners in Canada will be able, at their option, to challenge Canadian legislative, executive, or judicial decisions outside of the Canadian legal system and Canadian courts.

3. To elaborate, the treaty will likely be largely de facto non-reciprocal due to anticipated in-flows of Chinese investment to Canada outstripping Canadian investment in China. The deal gives Cadillac legal status to Canadian investors in China and vice versa. Yet Canada will be much more exposed to claims and corresponding constraints as a result of the de facto non-reciprocity. Two awards of a billion dollars-plus, and many over $100 million, have been issued against countries to date under these treaties, with more likely on the way. The awards are immune from judicial review, largely or entirely, and are often extra-territorial, depending on how the investor's lawyers frame the claim.

4. Usually, the capital-importing position under these treaties is occupied by a developing or transition economy. Under the Canada-China treaty it is occupied by Canada. This poses a serious fiscal risk. Notably, to sue under the treaty, a Chinese company requires only a minority share in any Canadian enterprise or other asset in Canada. Based on interpretations by arbitrators in numerous cases, a Chinese investor could obtain, or may already have obtained, ownership in Canadian assets via a holding company in a secrecy jurisdiction such as the Cayman Islands, without losing its right to sue under the Canada-China treaty. What steps have you taken to ensure that there is not now and will not be in future Chinese-ownership of assets of which the government is unaware?

5. The only comparator for Canada in terms of fiscal risk is NAFTA. Canada has been sued about 30 times under NAFTA Chapter 11 although many cases were minor. Canada has paid out around $170 million in compensation in four cases to date. Other countries have been ordered to pay much more. Our biggest loss apparently came last May in a claim by Mobil Oil/ Murphy Oil involving R&D expenditure requirements in the Hibernia and Terra Nova projects. To my knowledge, a damages award has not yet been issued in that case although Canada was found by the arbitrators to have violated NAFTA. The decision reportedly undermined Canada's standard approach to reservations in investment treaties with potential implications for the Canada-China treaty. It is not possible to confirm this because your government has not released the Mobil/ Murphy award against Canada in spite of your commitment to openness in these arbitrations. Would you please send me a copy of this award?

6. This heightens my concern that you have, in the Canada-China treaty, retained the right of the federal government not to release documents filed in Chinese investor lawsuits against Canada under the treaty if the government deems it not "in the public interest" to do so. This is not consistent with longstanding Canadian government policy to make such documents, and the arbitration hearings, public as a matter of course. If you intend to release the documents in any event, then why have you retained the right not to do so in the treaty? Other Canadian FIPAs state very clearly that all of the documents will be made public.

7. In terms of the fiscal risks, the Canada-China treaty goes beyond NAFTA in important respects and probably increases Canada's exposure to lawsuits under NAFTA itself, on a non-reciprocal basis. Under NAFTA, the fiscal risk is contained by carve-outs of existing state and provincial measures from various NAFTA disciplines. The Canada-China treaty goes beyond NAFTA by extending a ban on performance requirements to existing provincial measures, including legislation. This ban will extend to Canadian provincial treatment of U.S.-owned, as well as Chinese-owned, assets due to the most-favoured-nation requirement under NAFTA. However, Canadian investors in the U.S. will not receive reciprocal treatment in relation to U.S. state measures. This will likely frustrate the ability of any federal or provincial government to ensure that value-added benefits of resource exploitation in Canada accrue reasonably to Canadians. Have you analyzed the risk-benefit comprehensively in light of all existing provincial measures?

8. Other legal protections that will be extended to Chinese investors under the treaty involve topics of expropriation and fair and equitable treatment, among others. These concepts sound straightforward but arbitrators in many cases have taken them in unanticipated and investor-friendly directions by requiring public compensation for foreign firms whose "legitimate expectations" were not met by a government or who were denied a "stable regulatory framework" over the lifespan of an investment. These arbitrator-made disciplines are far- reaching because they may preclude any changes to legislation that affect negatively a Chinese investor, without taxpayer compensation to the investor for its business losses. The possibility of the arbitrators reading such requirements into the Canada-China treaty adds to the fiscal risk and illustrates the concession of sovereignty under the treaty. So-called "stabilization clauses" are usually found in investment contracts signed with governments in developing countries, not treaties agreed by Canada.

9. The arbitration process itself is a long story. Briefly, it does a lot for the lawyers and arbitrators in the field, for investors from major capital-exporters (here, China or the U.S.), and for major multinationals able to entangle governments in never-ending legal contests of attrition, especially in the resource sector. Philip Morris has used these mechanisms to attack, for example, anti-tobacco measures in Australia and Uruguay. On the other hand, the arbitration process does little for, and may harm, anyone else. Above all, the process is not judicial in the manner of domestic or international courts and thus not reliably independent.

10. Canadian investors have never won compensation in any of their 16 known lawsuits against the U.S. and other countries under NAFTA and FIPAs. I have not heard this mentioned by Canadian lawyers and arbitrators who champion these treaties. It may be that Canadian companies have benefited by their ability to pressure governments to settle disputes in cases that are not public, but if so this reaffirms the danger that Chinese investors will pressure governments in Canada to back away from laws or regulations without public knowledge.

11. Because the arbitrators under the Canada-China treaty operate outside of the authority of the Canadian legal system and Canadian courts, the treaty appears to contravene the judicature provisions of the Constitution concerning the role of the superior courts. In various historical cases, the Supreme Court of Canada struck down legislation that contained broad privative clauses precluding review of tribunal decisions by the superior courts. The treaty's transfer of judicial authority to arbitrators is analogous and, arguably, more far-reaching. Notably, the arbitrators may make non-monetary orders against states as well as issue damages awards for potentially massive amounts.

12. The treaty clearly impacts on provincial powers on natural resources, taxation, land and property rights, and other matters. It applies to provincial legislation, regulations, or court or tribunal decisions that affect Chinese-owned assets, with limited exceptions. It does not contain a NAFTA-style carve-out for provincial performance requirements or any carve-outs for provincial measures regarding the treaty's expropriation and fair and equitable treatment provisions. Thus, there is a real possibility that, over the lifespan of the treaty, Canada will face billion dollar-plus awards due to provincial decisions that are not reviewable in Canadian courts. Does your government intend to assume the fiscal risk and have you obtained formal provincial consent for the proposed ratification of the treaty in light of its constitutional implications?

"When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all" ... "Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament." -- Juan Fernández-Armesto, arbitrator from Spain.

14. This treaty will have major implications for core elements of Canadian legislative and judicial sovereignty. It will tie the hands of all levels and branches of government in Canada in relation to any Chinese-owned asset in ways that many governments in Canada, I suspect, have not considered closely. The implications will be legally irreversible by any Canadian court or other decision-maker for at least 31 years.

I urge you please to reconsider your decision to proceed with ratification of this treaty, without provincial consent or a serious public debate, on or about Oct. 31. I request replies to the questions posed in paragraphs 4, 5, 6, 7, and 11 above.

Yours sincerely,

Gus Van Harten
Associate Professor, Osgoode Hall Law School
Open access to my publications here.
Open access to my research database here.

Tuesday, October 16, 2012

I must confess: I have half a dozen good books sitting on my shelf that haven't quite gotten around to reading yet. It is probably no accident that most of them deal largely with economics. Jeffrey Sach's The End of Poverty, Crowley's Fearful Symmetry, Halpern's The Hidden Wealth of Nations, Loxley's Public Service, Private Profits, even Tim Harford's Undercover Economist have all fallen victim to the scarcity of time and stand in a queue that has yet to even reach my bedroom table.

That is why it is a treat to find a book in which the author says what he has to say in a slim volume (only 60 pages) that can be read in a day and which only costs about ten dollars. And despite its brevity, it raises two HUGE considerations that are often overlooked in discussions of the current crisis: (1) The importance and contingency of oil price shocks in triggering economic crises and the concomitant ideological shifts that we have witnessed since the 1970s; and (2) the policy inertia of our longstanding commitment to fighting inflation, which also dates back to the 1970s in North America (and, I would add, the late1940s in Germany). There is an almost Kuhnian attitude to economic paradigms that lies behind this work that adds much in terms of perspective.

Deflated: Causes and Cures of the Great Recession of 2009 is a useful supplement to the literature on the financial crisis and its aftermath. The latter describes in detail growth of shadow banking, the un-wisdom of Bush-era de-regulators, the sub prime bubble and the people determined to ride it for their own enrichment. Smeaton, an economist with experience in both academia and the private sector, probes beyond these factors to examine the statistical record of both the 1929 and 2009 crises and discovers "an overly restrictive monetary policy incapable of funding the productivity-driven growth which was underway in 1929" and that "fighting inflation was the key policy error" in both cases. Correcting this bias amongst the key players is a crucial part of correcting our course today: so too are a shift toward consumption taxes, a more accurate understanding of what Keynes said about deficits, and "the seeds of a new economics" better suited to a post oil-crisis, post-inflationary environment.While no substitute for lengthier studies of the Great Recession by Krugman, Roberts, Rosenberg and others, this breezily-written book offers something even more valuable: an ability to think outside of the box.

Thursday, October 11, 2012

Andrew Leonard has written an excellent article on the role that housing policy has played in the U.S. economy and politics: http://www.salon.com/2012/10/10/obamas_hard_housing_lesson/ . The disappointment in Obama's performance can be traced back to his speech in Arizona on February 18, 2009, in which he announced the Homeowner Affordable Modification Program (HAMP). The next day Rick Santelli made his famous rant on CNBC, which objected to bailing out "losers", and which went viral and sparked the "Tea Party" movement.

"Not much of a grace period there — the Tea Party revolt started one month into Obama’s administration, and it was directly inspired by the Obama administration’s initial attempt to deal with the most pressing economic problem facing main street Americans: the collapse of the housing market."

Ironically, the tepid nature of the HAMP disappointed Democrats, but still managed to rile Republicans. To me, the "either-or" choice of a conventional stimulus package over a truly bold housing policy was Obama's biggest mistake. It was understandable that an approach that spread benefits more widely would be less politically risky, but there was an appetite for bold policy--and a successful housing policy would have done at least as much as the ARRA to stimulate a faster recovery. The rhetoric of "summer of recovery" in 2010 reveals that this wishful thinking about a conventional economic recovery was alive in the White House, even though they knew that this was not a conventional recession.

In a sense, the problem with housing policy in 2009 was the same as the problem with Obama's first debate performance in 2012: it conceded far too much to the Opposition. Obama the Conciliator is not what excited people about him in 2008.

By Arthur I. Blaustein, Professor Community and Economic Development and Public Policy at the University of California, Berkeley

Most Americans have one eye on the nation’s economic crises and the other on the presidential election. And they are asking themselves, “Are the Democrats or the Republicans better for the economic health of the country as well as for my own financial well-being?” That is the defining question of this election.

A businessman who voted for Bush twice and Obama in 2008, told me, “The goals of Barack Obama’s social programs-particularly health care, education and the environment-seem good. But I’m worried the Democrats can’t manage the economy as well.”

Many voters agree, and a recent poll shows that an overwhelming majority (70 percent) cite the economy as their top concern. For years the pollsters have found that most voters believe the Republicans do better with the economy. I’ve heard the businessman’s basic point-that the Democrats have better social policies but the Republicans are better managers of the economy-more often than I’ve heard Judy Garland sing “We’re Off to See the Wizard.” But is it true? Don’t count on this question being examined and answered in a full, open and honest debate.

Thirty-two years ago-with the election of Ronald Reagan-we entered an entirely new phase of presidential politics. The focus since then has been who can raise the most money and package the best media image, rather than who can demonstrate the most competence and capacity to govern. Our country’s political, economic and social life has been reduced to a battle of 15-second sound bites and 30-second commercials-most of them negative attack ads-with results reported like a football score. TV news has turned democracy into “duhmocracy.”

Fortunately, we don’t have to depend on campaign slogans or advertising bucks to frame the debate. We can look to the record. Here’s the Economic Sweepstakes Quiz. The rules are simple. Guess which president since World War II did best on these eight generally accepted measures of good management of the nation’s economy. You can choose among six Republicans: Eisenhower, Nixon, Ford, Reagan, Bushes I and II; and six Democrats:

If this isn’t enough to destroy the myth that economy has performed better under Republicans, the stock market has also done better under the Democrats. The Dow Jones Industrial Average during the 20th century rose 7.3 percent on average per year under Republican presidents. Under Democrats, it rose 10.3 percent-which means investors gained a whopping 41 percent more. And the stock market during George W’s two terms took a nosedive while it recovered handsomely under Obama. Moreover, since WWII, Democratic presidents have increased the national debt by an average of 3.9 percent per year and Republican presidents have increased it an average of 10.3 percent. During the same time period, Democratic presidents produced, on average, an unemployment rate of 4.9 percent; Republicans 6.4 percent. That’s the historical record.

What about economic policies over the past 20 years? The Clinton administration presided over the longest peacetime economic expansion in our history. The national debt was reduced dramatically, the industrial sector boomed, wages grew and more Americans found jobs. How did the Bush-Cheney team fare? In their eight years, we experienced the weakest post-recession job creation cycle since the Great Depression, record deficits, record household debt, a record bankruptcy rate, and a substantial increase in poverty. We went from being the nation with the biggest budget surplus in history to becoming the nation with the largest deficit in history.

When Obama took office in January of 2009, this was the America that he inherited from Bush-one that was reeling from the economic fallout from the Great Recession and the worst environmental disaster in our history; a housing mortgage meltdown, with families losing their homes; skyrocketing health-care costs; unacceptable levels of unemployment and underemployment; and an aging and broken infrastructure. If this were not bad enough, local governments, states, and cities-some close to bankruptcy and others already bankrupt-were faced with massive layoffs of teachers, police, firefighters, and human-service professionals. These were hard times, and a growing majority of Americans have been telling the pollsters, for the past twelve years, that “our nation is headed in the wrong direction” and that “their children will be the first generation to do worse than their parents.”

Bush and his economic team allowed the banks, Wall Street wheelers and dealers, and real estate speculators to drive the country into near-bankruptcy. And when Obama proposed economic stimulus legislation to get us out of this financial ditch; the Republicans in Congress opposed it and complained about the size of the tow truck. From the first day Obama took office Republican leadership in Congress dusted off their old Nancy Reagan “Just Say No” buttons and purposefully and cynically obstructed any effort by Obama to get the economy back on the right track and to create more jobs.

In spite of this political reality Obama’s critics-in the media and the Republican Party--never let up attacking and blaming. They behaved like we live in the unreal world of television commercials, where a problem gets resolved in sixty seconds. You buy a new car and mysteriously, the guy or gal of your dreams suddenly appears. You switch stock brokerage firms, and you suddenly make a bundle of money. You take a pill, and all your sexual problems are resolved. All this happens with the snap of a finger. In the real world, especially politics, nothing works that way. There are no quick or painless fixes. I am reminded of an admonition from the Old Testament prophet Isaiah: “Judge us not by the heights we have achieved but by the depths from which we have come.” Considering the absolutely dire circumstances of the economy and the total opposition of the Republicans, Obama has done a better than decent job. His American Recovery and Reinvestment Act-the economic stimulus package-spurred economic growth, created and saved 2.6 million jobs and prevented the unemployment rate from climbing to over 12 percent.

What is downright frightening is that Mitt Romney and Paul Ryan seem to still believe that an unregulated free market will solve America’s economic problems. They want to privatize Medicare and water down Social Security. They want to return to the very same failed “trickle down” economic policies of Reagan and both Bushes.

In 1980, Bush I called supply-side policies “voodoo economics.” But he embraced these “trickle-down” policies in order to become Vice-President and then President.

Reagan’s and both Bushes’ royalist economic policies were failures-fool’s paradises built on the sands of borrowed time and borrowed money. The consequences were staggering debt, industrial decline, shrinking wages, six painful recessions, increased poverty and structural unemployment. The reckless Reagan-Bush-Bush spending and borrowing brought us to the brink of social chaos and economic catastrophe.

With Romney and Ryan, (as Yogi Berra observed) “it’s déjà vu all over again.” Just like in “The Wizard of Oz,” when we finally get to see who is operating the smoke puffing machine, we find a consummate pitchman. If his overall Etch A Sketch campaign policies are dictated by holding a finger to the wind, the economic policies of the Wizard of Bain defy the basic rules of math and gravity. When you get beyond the smoke and mirrors it is essentially the same economic game plan of George W. Bush: cut taxes and reduce regulation to jump-start the economy. It’s the new-old “trickle down” potion; and as grandpa always said: “snake oil sells but it doesn’t cure.” Beyond that, Romney’s deficit reduction scheme, tax plan, and proposal for creating 12 million new jobs are all based on vague pledges and bogus numbers that are seemingly plucked out of thin air.

So, while the Romney-Ryan ticket composes hymns to patriotism, rugged individualism, “trickle-down” economics, “staying the course” on Bush’s tax cuts and family values, they are also embracing the very economic policies that both undermine the middle class and subvert the security of American family life. American families need less pious rhetoric, and more policies geared toward a healthy economy, secure jobs, decent health care, affordable housing, quality public education, renewable energy and a sustainable environment.

Romney seems unable, or unwilling, to grasp that the government has an important leadership role in this. In fact, providing tax giveaways for the rich and for corporate America is the only policy that seems to energize Romney and the Republicans in Congress; while Obama has pledged to repeal those very same giveaways. And contrary to the G.O.P. rhetoric, 90 percent of Americans-people making under $112,000 a year in individual income-would pay less taxes under Obama’s tax plan. Moreover, according to research from Professor Larry Bartels of Princeton, real middle class wage growth when a Democrat is President is double that of when a Republican is President.

With four years of Romney continuing Bush’s failed policies, we could well wake up one morning on “the economic endangered nations” list. Deficits and debt could strangle our economy for the next generation, and all but the wealthy will have a tough time making ends meet because of a shredded social safety net. On the other hand, Obama has demonstrated a willingness to confront these painful realities. On overall economic policy, he offers qualities indispensable to genuine leadership for America-patience, fairness, candor, and vision. At this critical time we need an administration that understands and believes in coherent, comprehensive and equitable policies that promote sustainable and healthy economic growth-and, on that count, Democrats have a winning record.

About Arthur Blaustein

Professor Arthur Blaustein teaches Community and Economic Development and Public Policy at the University of California, Berkeley. His most recent books are Democracy Is Not a Spectator Sport… and The American Promise-Justice and Opportunity. He served as chairman of the Presidents National Advisory Council on Economic Opportunity under Jimmy Carter and on the board of the National Endowment for the Humanities under Bill Clinton.

Who Creates More Jobs? Democrats or Republicans?

Democratic Data PAC has assembled and analyzed the historical US Government jobs data from 1940 to 2012. The data, arranged by Federal Fiscal Year, shows that, since 1940, Democratic Administrations have created an average of 904,000 more jobs per fiscal year than Republican Administrations.

Tuesday, October 09, 2012

When someone yearns for the spotlight and dreams of becoming premier, yet shows little interest in policy ideas and little patience or ability for the details of public administration, they risk becoming a political caricature. Th at is why, upon Christy Clark's accession to the leadership of the BC Liberal Party in early 2011, I predicted that she would be a "disaster". Despite being the heir apparent of the Liberal Party for years, her reocrd as Minister of Education and Deputy Premier had revealed her as someone who had little taste for policy or administration. The fact that she audaciously ran for mayor without spending any time on Council did little to dispel that impression. Even Albertans can see that this is someone who seeks the limelight but has little affection for the details of thinking and governing. This might be seen as Clark's last chance to win on an issue; instead she has mangled that political opportunity as perfectly as she mangled the HST. Calgary Herald columnist Don Braid had this to say about Clark's behavior last week during her visit to Alberta, including the premier describing the benefits of the $5 billion Enbridge pipeline as "chump change" compared to B.C.'s plans for liquefied natural gas."She is, by a wide measure, the most inconsistent, self-contradictory and desperate politician in Canada," Braidwrote, also describing her as a "peculiar unelected premier, who can seem perfectly normal for about five minutes."But dear readers, if I was so prophetically astute about Christy Clark, why won't more people listen to what I have to say about Adrian Dix? He is the Stephen Harper of the Left, so methodical and professional in his control-and-spin ways that he will have many people yearning for the days of goofy amateurishness, and the environment of open, democratic politics that that allows for.

Sunday, October 07, 2012

In 1997, the Chretien Liberal government bowed to pressure from a combination of provincial government and business interests to transfer the responsibility for meat inspection from Health Canada to Agriculture Canada. (A similar combination of provincial and business interests lobbied successfully for the non-implementation of the Kyoto Treaty --see a pattern?) Since then, corporate concentration and free trade have led to the development of huge meat processing facilities like the one in Brooks, Alberta.

More recently, the Harper Conservatives have loosened regulations and modified immigration policies to ensure a supply of less educated, less secure and more deferential workers to do the hard work of meat processing.

While acknowledging the seemingly inexorable arguments about the value of economies of scale in this-like-any-other industry, I wonder if we shouldn't miss the decline in local butchers and abbatoirs. And the decline of high standards, whether in the integration of foreign workers or in the ensuring of meat safety, on the part of the federal government.

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On Knowing (1)

"The most perfect philosophy of the natural kind only staves off our ignorance a little longer: as perhaps the most perfect philosophy of the moral or metaphysical kind serves only to discover larger portions of it." ---David Hume

On Knowing (2)

"Everyone takes the limits of his own vision for the limits of the world."--- Arthur Schopenhauer

On Knowing (3)

"There is no a priori reason for thinking that the truth, once discovered, will necessarily prove interesting."---C.I. Lewis